They're angling instead for a relatively small infusion of European aid directly into Spanish banks, rather than the full-fledged bailouts that Greece, Portugal and Ireland received.

"What they want is probably some type of support for those banks, without having to go through the whole bailout, such as the ones we have seen in the other three countries," says economist Gonzalo Garland of Madrid's IE Business School.

He says aid needed for Spanish banks might be in the $50 billion range — less than half what it cost to prop up Portugal, the smallest economy of the three that have received bailouts so far.

A 'Bailout Lite'?

So it could be called a "bailout lite" — a relatively small amount of cash going to banks instead of government coffers. And Spain is hoping to avoid the kind of strings attached to the other bailouts, Garland says.

"Probably there would be some type of imposition on some policies of Spain, but not the full-blown rescue or bailout that we have seen in the others," he says.

However, EU rules would still have to be changed to allow European rescue funds or the central bank to recapitalize Spanish banks directly. And that could happen at an EU summit later this month.

Garland says that after Francois Hollande's election as president of France, there seems to be a growing consensus among European leaders that it's in their best interest to try to work with member states to help them avoid reaching the point of a bailout.

"International pressure is building up. Germany is a little bit alone. We're seeing even Germany changing some positions, and maybe talking about building a system where there will be direct support of banks that are failing in Europe," he says.

The hope is that stronger European institutions will emerge from the crisis. For Spain, the question is whether it has time to wait for those changes. Thursday will be a key test as Spain auctions off 10-year bonds and waits to see if investors still want them.

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Transcript

AUDIE CORNISH, HOST:

In Europe, all eyes are on Spain, where failing banks threaten to drag down the continent's fourth largest economy. Spanish officials have been sending mixed signals about whether they can afford to rescue their own banks or if they'll need to ask for an EU bailout.

As Lauren Frayer reports from Madrid, Spanish leaders may be negotiating another option, what many are calling a bailout light.

FRAYER: We'll make whatever decisions we need in the future, Guindos told reporters in Brussels, and that won't be for weeks after audits of Spanish banks, he said. But, just a day earlier, Spain's budget minister, Cristobal Montoro, said it's become too expensive for Spain to borrow money and so it needs European aid immediately.

CRISTOBAL MONTORO: (Foreign language spoken).

FRAYER: Spain doesn't have an open door to the markets, Montoro told a local radio station. His comments had analysts predicting a bailout within hours. Either they got their signals crossed or both ministers are right. Spain may be out of money, but it might not need a bailout. The key word here is bailout, a word Spanish officials don't want to use. They're angling instead for a relatively small infusion of European aid directly into Spanish banks rather than the full-fledged bailouts that Greece, Portugal and Ireland received.

GONZALO GARLAND: So what they want is probably some type of support for those banks without having to go through the whole bailout, such as the ones that we have seen in the other three countries.

FRAYER: Economist Gonzalo Garland at Madrid's IE Business School says aid needed for Spanish banks might be in the $50 billion range, less than half of what it cost to bail out even the smallest economy, Portugal. So it would be a bailout light, a smaller amount of cash going to banks instead of government coffers and Spain is hoping to avoid the kind of strings attached to the other bailouts, Garland says.

GARLAND: Probably it would some type of imposition on some policies to Spain, but not the full blown rescue or bailout that we have seen in the others where you have the troika really imposing very strict things on other things that, actually, the government of Spain wants to manage themselves.

FRAYER: EU rules would still have to be changed to allow European rescue funds or the Central Bank to recapitalize Spanish banks directly and that could happen at an EU summit later this month. Garland says that, particularly after Francois Hollande's election in France, there seems to be a consensus among European leaders that it's in their best interests to try to work with member states to help them avoid reaching the point of a bailout.

GARLAND: International pressure is building up. Germany is a little bit alone. We're seeing even Germany changing, somewhat, positions and maybe talking about building a system where there will be direct supporting of banks that are failing in Europe, which will be applied in the future.

FRAYER: The hope is that stronger European institutions will emerge from the crisis. For Spain, the question is whether it has time to wait for those changes. Tomorrow, Thursday, will be a key test when Madrid auctions off 10 year bonds and waits to see if investors still want them.

For NPR News, I'm Lauren Frayer in Madrid.

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This is ALL THINGS CONSIDERED from NPR News. Transcript provided by NPR, Copyright NPR.